Dilbert jumps into real estate

5 reasons why real estate rebound remains shaky

CNBC breaks down the top 5 reasons why real estate hasn't fully rebounded yet; none of this will come as a surprise to followers of HighRiseSF, since we've been talking about these issues for the past month:

Despite hopes that the market would begin showing signs of life this spring, the latest housing data suggests otherwise. Instead, the sector remains stubbornly moribund—trapped in a spiral of declining prices, increasing mortgage rates, unemployment and several unforeseen factors.

And with many experts believing that a real estate rebound is critical for the overall economy to recover, patience with housing is beginning to wear thin.

1) Unemployment

Consumers fearful of losing their jobs haven't been spending on much of anything, and housing tops the list.

That's a trend unlikely to change until unemployment turns around. So it's no coincidence that housing and the jobless rate are expected to recover right about the same time.

2) Credit Availability

Despite all the government efforts to inject liquidity into the capital markets, banks are still reluctant to lend.

While those with squeaky-clean credit histories and a lot of cash on hand are in a better position to get loans, the rest of the buyers are getting kicked out of the marketplace.

3) Price Pressures

Call it the ultimate Catch-22: Housing prices are still too high to attract buyers but too low for the many sellers who are underwater—owing more than their homes are worth—on their mortgages.

That's creating a crisis in the market that can only continue to play out until the supply and demand equation can level.

"The faster you clear off this excess inventory the faster you can stabilize home prices," says Walter Molony, spokesman for the National Association of Realtors.

4) Appraisals

The National Association of Realtors has contacted the New York Attorney General's Office to look into new standards under the Home Valuation Code of Conduct that the group says its making it impossible to get a fair assessment done of home values.

5) Short Sales

One of the ways that the industry hopes to get rid of excess inventory is through so-called "short sales" of property. Such transactions occur when a mortgage holder agrees to the sale of a property even though it is less than the amount owed.

Banks, though, have been reluctant to agree to the sales. Critics say the reticence from banks comes from a desire to hold the properties until values go up, a move made easier by recent changes to mark-to-market accounting rules. Banks, though, say prospective buyers are trying to take advantage of the situation by submitting low-ball offers.

Again, nothing new for followers of HighRiseSF, but still a good primer to get you up to speed, in case you don't have time to read through the archives of this blog.

SOURCE: CNBC

Loan modifications on the rise, due to Making Home Affordable Program

Up 55% in Q1 over the previous quarter

The pace of home loan modifications shot up during the first quarter, but so did mortgage payment delinquencies and foreclosures, U.S. bank regulators said Tuesday.

The quarterly report on mortgage metrics showed that the quality of modifications improved, with more than half of them resulting in lower monthly principal and interest payments.

But the report released by the Office of the Comptroller of the Currency and the Office of Thrift Supervision presented mixed signals of improvement and distress as rising unemployment and other economic pressures weighed on borrowers.

A good start, but we have a ways to go until we're out of the hole.

SOURCE: CNBC

April S&P/Case Shiller numbers improve from March; pace of decline slows

April numbers from the S&P/Case Shiller home price index are in, dropping 0.6% from April to March, moderating previous months' declines:

Prices of U.S. single-family homes fell in April from March but the pace of the decline moderated, suggesting stability is emerging in some regions, according to Standard & Poor's/Case Shiller home price indexes released on Tuesday.

An index of 20 metropolitan areas dipped 0.6 percent in April from March, after a 2.2 percent decline the month before, for an 18.1 percent downturn from a year earlier.

The month's slide was smaller than the 1.8 percent drop forecast in a Reuters poll.

S&P's index of 10 metropolitan areas declined 0.7 percent in April for an 18 percent year-over-year drop, after falling 2.1 percent month on month in March.

The good news is that the San Francisco MSA increased 0.6% from March to April, up from a 2.2% decrease from February to March. The MSA is down 28% YOY.

Of course, these numbers are from April. May data will most likely continue the trend (since that represents closings on contracts initiated 30-60 days earlier), but with the rate increases experienced during May, we could very well see a decrease again once June numbers come in (around August). Will it have a negative effect on the psychology of the market? Anything is possible at this point. If nothing else, it will give print journalists a reason to doubt a bottom (and hence, the cycle of real estate continues).

SOURCE: CNBC and STANDARD AND POORS

Energy bill passed by US House may lead to national building code standard

The bill would give the federal government power over local building codes. It requires that by 2012 codes must require that new buildings be 30 percent more efficient than they would have been under current regulations. By 2016, that figure rises to 50 percent, with increases scheduled for years after that. With those targets in mind, the bill expects organizations that develop model codes for states and localities to fill in the details, creating a national code. If they don’t, the bill commands the Energy Department to draft a national code itself.

States, meanwhile, would have to adopt the national code or one that achieves the same efficiency targets. Those that refuse will see their codes overwritten automatically, and they will be docked federal funds and carbon “allowances” — valuable securities created elsewhere in the bill that give the holder the right to pollute and can be sold. The Energy Department also could enforce its code itself. Among other things, the policy would demonstrate the new leverage of allocation of allowances as a sort of carbon currency — leverage this bill would be giving to Congress to direct state behavior.

While states-rights folks and libertarians would disagree with the proposal, I argue that some things are too important to be done piece meal, with 50 states and thousands of municipalities having differing (and in all likelihood, slow moving) building codes. Everyone benefits from lower energy costs.

SOURCE:WASHINGTON POST

Interest rates dropping again

Here are rates from Debra Stedt with Guarantee Mortgage:

Conforming to $417,000 5.375% at 0 points
High Balance to $729,750 5.375% at 1 point
5/1 ARM 5.625% at 0 points
7/1 ARM 5/875% at 0 points
10/1 ARM 6.00% at 0 points

Good news to end the week as we head into the summer slowdown.

Also awaiting figures from my BofA contact.

New homes sales fall in May; appraisals of greater concern than interest rate increases?

May numbers for new home sales are in; results prove what we've been seeing in the past month due to interest rate increases (as I'm sure will be the case for resale as well):

Battered home builders in the U.S. got even more bad news Wednesday: new-home sales fell unexpectedly in May [Ed. note: not unexpected for HighRiseSF followers], showing the sector must continue searching for stability as it limps through the worst downturn in generations.

Single-family sales decreased 0.6% from the prior month to a seasonally adjusted annual rate of 342,000, the Commerce Department reported. That's below the 360,000 economists had expected.

Year-over-year, new-home sales were 32.8% lower than the level in May 2008.

In addition, there is growing concern over sales lost due to new appraisal guidelines. Dan Oppenheim, analyst with Credit Suisse, sees this a potential roadblock to real estate recovery:

"We see low appraisals as a key issue we think will disrupt closings and hurt pricing for some time given the more stringent appraisal guidelines enacted last month. This will likely mean that many orders signed in recent months may not result in closings."

Recovery is looking more and more fickle. What does that mean for buyers and sellers? Chances are the best deals are still on the horizon and that we'll see further price decreases nationwide, which could very well pull equities lower in the coming months (and subsequently lead to lower interest rates again).

SOURCE: CNN MONEY

New appraisal rules leading to lost deals

“In the past month, we have suddenly been bombarded with many stories of, at the last moment, transactions falling apart because appraisals are coming in unrealistically low,” said National Association of Realtors Chief Economist Lawrence Yun. “As a result it opens up a new round of negotiations between a buyer and a seller or in many cases the buyer just steps away.”

The HVCC forces a firewall between lenders/brokers and home appraisers. Gone are longstanding relationships between a local mortgage broker or lender and a local appraiser.

Now, lenders and brokers are forced to use appraisal management companies (ironically – or maybe not so ironically—many of which are owned by the big banks). These companies hire independent appraisers across the country and call on them to do the local appraisals.

Realtors say some of these appraisers are not only not local, they don’t even have access to the local MLS. They are doing appraisals using computer models, often incorporating distressed sales as comps, and often not even knowing that the home had extensive renovations or an addition. As a result, the appraisals are coming in far lower than the agreed-upon purchase price.

It’s affecting new purchases as well as refinances.

SOURCE: CNBC

Mortgage brokers slash 2009 forecast

Today the Mortgage Bankers Association put out a revision in its 2009 originations forecast. A big revision. A $700 billion revision. “$84 billion of the drop is due to lower purchase originations and the rest is due to lower rate/term refinances and very low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP).” That’s big too.

The MBA had raised its forecast by over $800 billion in March following the drop in interest rates associated with the Fed’s announcement on the Treasury bond and mortgage-backed securities purchases programs as well as the implementation of the HARP. But at the time it warned that rates might not stay low, and guess what? They didn’t.

The refi’s dropped off for two reasons, one being the interest rate rise, and the second being the poor results on the HARP.>SOURCE: CNBC

Roubini worried about recovery, due to interest rates and oil prices

The price of oil, which is rising too fast, and long-term interest rates that are beginning to creep up are likely to suppress a budding recovery, famous economist Nouriel Roubini, also dubbed "Dr. Doom," told CNBC Monday.

"I see even the risk of a double-dip, W-shaped recession… towards the end of next year," Roubini told "Squawk Box Europe."

Because of bad macroeconomic data and poor earnings prospects as companies have weak pricing power and demand is still subdued, the surprises will be on the downside, he said.

"That's why I believe there's going to be a significant market correction for equities, for commodities and even for credit," Roubini added.

He said recovery signs should come from unemployment, housing, industrial production, sales and consumption data.

"When I look at them I see so far still more yellow weeds than green shoots...", he added.

I might have to agree with you, Dr. Doom. The plus side, if any, is that falling equities should lead to lower interest rates, again. The question is whether or not the real estate market will remain in recovery by then, or if this is all just a dead cat bounce.

SOURCE: CNBC

Foreign investors eye 2010 recovery for San Francisco real estate

Foreign real estate investors say they expect to see a recovery in the U.S. real estate market by the end of the second quarter of 2010, according to the results of a new survey released today by the Association of Foreign Investors in Real Estate (AFIRE).

Respondents projected their investments for the remainder of 2009 will substantially out-strip investments completed year-to-date. On the debt side, survey respondents say they expect to invest three times more than current investment levels year-to-date; equity investors expect they will place seven times more than current year-to-date investments. Overall, three quarters of the survey respondents had not yet invested in 2009; however, more than two-thirds of them plan to invest some debt or equity in U.S. real estate before the end of the year.

Survey respondents continue to be optimistic in their investment projections. Thirty-one percent said they were more optimistic than at the beginning of the year; 16 percent said they were more pessimistic; and 53 percent said they felt about the same as at the beginning of the year.

In the 17th Annual Survey, released in January, respondents named Washington, D.C., New York, and San Francisco respectively as the top three cities for their investment dollars.

SOURCE: MARKET WATCH

Transbay terminal parcel coming off the market

Yet another project put on hold due to economic and market conditions:

The San Francisco Redevelopment Agency has suspended efforts to develop housing on a key Transbay District parcel after bids for the property came in “well below the potential value of the site in a healthier real estate market,” according to a memo from Executive Director Fred Blackwell.

Blackwell said the agency decided to suspend the request for proposals process for Block 8, a 42,600-square-foot parcel on Folsom Street between First and Fremont streets. The agency is looking for a developer to build two market-rate structures: a 550-foot residential tower and an adjacent 50-foot residential townhouse development. In addition, the RFP called for a 100 percent affordable building 65 to 85 feet.

“Staff believes that waiting a year and issuing a new RFP could potentially result in more interest from developers and higher purchase offers,” said Blackwell.

Blackwell said the agency will issue a new RFP in 2010.

SOURCE: BIZ JOURNALS

Praise Jesus! Rates falling!

Inflation numbers came out today which calmed inflation fears. They're calling it the "Goldilocks Scenario":

Large debt sales have raised concerns about inflation. But a government report on consumer prices released Wednesday indicated inflation is not a near-term threat, echoing the government's report released Tuesday on wholesale prices.

The Consumer Price Index, the Labor Department's key measure of inflation, has fallen 1.3% over the past year, marking the largest year-over-year decline since April 1950. On a monthly basis, CPI rose 0.1% in May, shy of the 0.3% rise that was expected.

With inflation in check, the Federal Reserve can feel more confident leaving its key lending rate at a target range of zero to 0.25%. One analyst said the Fed's hands are tied for now.

Also, the debt buyback program from Treasury is kicking in:

On Tuesday, debt prices rallied after the first scheduled debt buyback for the week where the government bought $6.5 billion of debt that matures between May 2012 and November 2013.

The government embarked on its $300 billion quantitative easing program in March. The goal was to create demand in the marketplace, keeping a lid on rising yields.

However, creating demand in a marketplace overwhelmed with supply has proven a challenge. Yields have dipped in the last few sessions, but are still higher than they were in March. Higher yields mean higher lending rates, particularly for home mortgages.

The government continues to sell debt to fund its rescue for the economy. On Thursday, the Treasury will announce the size of the 2-year, 5-year and 7-year auctions scheduled for next week. Last week, the market absorbed $65 billion in debt.

Subsequently, rates dropped 3/8th of a point over night.

SOURCE: CNN MONEY

Housing starts up; not as good as it sounds

Housing starts climbed 17% in May. Great news, but once you look closer, it's not as good as it sounds:

First of all, the biggest part of the gain was in multi-family, up 61.7 percent month to month, but that’s after falling 49 percent in April. Patrick Newport, an economist at HIS Global Insight, says the multi-family market is still in a “deep slump,” despite the monthly jump. “Permits, which better gauge underlying conditions, fell 8.3 percent, the 11th consecutive monthly decline, to a record low of 110,000 unit annual rate,” says Newport. “The recent sharp decline in this market is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values.”

Looking at San Francisco as an example, if there was activity in multi-family, it would be apartments, not condos. Most developers are opting for rentals (while holding out for the possibility of turning condos down the road).

What about the increase in single family homes?

But analyst Ivy Zelman gave me a huge nugget: 50 percent of sales in May were on spec. She says we’re seeing a lot of spec homes now because, “today’s consumer wants to touch and feel the house.” The positives are that cancellations are down, sales are better and there’s less negative pricing, although discounts are still prevalent.

"Spec" is when a developer builds a home without a buyer (in the past, developers would wait for a buyer to sign a contract before starting construction, or let the house wait for a buyer to select cabinets, carpet, tile, etc.). Since it takes 6-9 months to build a home, they must start building now if they want to close escrows before the tax credit expires in November; also, that coincides with the end of the fiscal year for many builders.

However, the elephant in the room is still interest rates:

The big wrench in that tactic is mortgage rates. Zelman claims, “the market collapsed last week.” Yes, it’s now summer, but she says that in Northern California, Las Vegas, Seattle, Chicago, the numbers went back to fourth quarter lows. The spring offered incredible affordability, but the rise in interest rates and the impending end of the tax credit could choke that off in summer.

The investment markets will look at this as a sign of more good news in real estate, and the economy as a whole, but our "green shoots" are starting to get a little wilted. Is anyone at Treasury watching?

SOURCE: CNBC

Mortgage rates now at 7 month high

Just the facts:

Rates for 30-year home loans jumped to the highest level in seven months this week, leading to a slowdown in refinancing activity, Freddie Mac said Thursday.

The average rate for a 30-year fixed mortgage was 5.59 percent this week, up from 5.29 percent last week, Freddie Mac said. The last time the average 30-year fixed rate mortgage was higher was the week ended Nov. 26 of last year, when it averaged 5.97 percent.

Frank Nothaft, Freddie Mac's chief economist, said the higher rates followed an increase in bond yields, a barometer for interest rates on mortgages and other loans.

On Wednesday, the government was forced to lift the yield on 10-year Treasury notes to 3.99 percent to lure in buyers at an auction. That was the highest yield it's offered since last August, before it started bailing out the nation's financial industry.

Though there are signs that the troubled U.S. housing market is beginning to stabilize, higher rates could threaten or slow down any recovery, since borrowers would be able to borrow less money and might decide to hold off on their purchases.

SOURCE: YAHOO FINANCE

Jim Cramer thinks he knows better

Jim "Mad Money" Cramer is not one of those who believe rising rates are bad for real estate recovery:

Reeling From the Rate Prattle
By Jim Cramer
RealMoney Columnist

As someone who is in the market for real estate pretty much every day in a multistate area, all of this talk about rates choking off the nascent recovery is almost unbelievable. These are bond people, probably many of them short, telling you things that simply aren't true.

In addition, they are trying to explain away an especially positive Treasury auction today, but I am sure it's just a matter of time as we are in one of those bizarre negative moments that we aren't about to shake.

Throughout this country people are living in fear that they aren't going to get the lower rates unless they act now.

I'm not a bond person, Jim, and I find it rather believable. Just ask one of my clients who passed on a great one bedroom on South Park because the rates were higher and pushed the payments out of her comfort level.

Read the whole article and you'll see that Jim doesn't have much meat behind his argument (when does he ever?) except for anecdotal observations from a higher-end agent. The proof will come in the coming month, with hard data as evidence (unless rates fall again).

I hope I'm wrong, of course.

SOURCE: THE STREET via ALEXIS MCGEE

"Why Rising Interest Rates May Be a Good Sign"

Two sides to every coin:

Now that a collapse of the U.S. banking system seems unlikely, stock-market watchers have found a new thing to worry about: rising interest rates. The yield on the government's 10-year Treasury bond is up 65% this year to a recent 3.83%. Says top Wall Street strategist Edward Yardeni, "If bond yields get up to 4.5%, so not much higher than they are now, I think we would see a real decline in mortgage refinancing, which would threaten the viability of the economic recovery."

Yardeni and others are worried that higher interest rates could push housing prices lower, and hurt banking profits. What's more, rising rates could indicate that inflation, which has largely disappeared in the recession, is coming back. To be sure, the increase in borrowing costs has already slowed home-loan-refinance activity, but it is unlikely to do much else to damage the economic recovery.

...In fact, some think a modest rise in interest rates could be good for housing demand. "For the fence sitters, rising interest rates could be the motivation they need to buy," says Steven Wieting, Citigroup's US economist.

A valid point, and one that will probably lead to a short spurt in activity (from the fence-sitters) but one that doesn't lead to long-term, sustainable growth.

SOURCE: TIME

Forget Case-Shilling; watch underwear sales

During a recession, underwear is among the first things that people stop buying—because hardly anybody actually sees them. This creates pent-up demand, and so when underwear sales level off and increase, it should signal an uptick in consumer demand.

According to the underwear indicator, an old favorite of Alan Greenspan, there needs to be a return to 2 to 3 percent annual growth in sales in order to claim a recovery.

However, consumer research group Mintel predicted underwear sales will see a continuing decline of 2.3 percent this year and no recovery until 2013.

Good luck getting the image of Alan Greenspan and undies out of your mind.

SOURCE: CNBC

As predicted, mortgage demand plummets ... home sale numbers to follow

Followers of HighRiseSF know this was coming:

Spiking U.S. mortgage rates drove down total home loan applications last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said on Wednesday.

The swift rate rise crimps affordability, likely cutting offer prices on home sales and prolonging a housing turnaround.

Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has sopped up hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market.

The average 30-year fixed mortgage rate jumped 0.32 percentage point in the June 5 week to 5.57 percent. That was nearly a full point, about 100 basis points, above the record low rate of 4.61 percent in March, the trade group said.

This could very possibly put an end to our recent months of good news, with a new bottom looming on the frontier. If rates stayed low long enough to absorb the inventory on the market (already heading in the right direction), we'd be in better shape. Now, I'm afraid we'll see a period of increased supply (especially "shadow inventory" being held by banks) and higher interest rates. Let's hope they fall again, soon.

SOURCE: REUTERS via YAHOO NEWS

SPUR Cruise 2009: What to see when there are no new towers on the skyline?

San Francisco real estate developers (or at least those who can still call themselves developers) poured onto the San Francisco Belle as part of this year's SPUR Cruise. However, with no new towers on the skyline in the past year, what's a cruise to see? How about a bridge, instead?

So instead of steaming south along the bay to look at structuring rises in Rincon Hill and Mission Bay, last night’s SPUR cruise chugged out into the bay to examine the Bay Bridge $5.7 billion self-anchored suspension span.

How the times have changed.

And in response to this point from JK Dineen:

The San Francisco Belle that year was abuzz with chatter about lines of investors snaking through the sales office of Mike Kriozere’s One Rincon Hill while drinking One Gincon signature cocktails at a week long series of presales soirees...

Brokers were signing contracts into the wee hours.

Kriozere scored 250 deposits in four days of pre-sales. Three years later, from the middle deck of the Belle, this is what the building looks like next to its cousins at Tishman Speyer’s Infinity.

More accurately, three years later, One Rincon has still only sold about 250 homes, for a net of almost ZERO new contracts in 3 years. Ouch.

SOURCE: BIZ JOURNAL

Transbay development battle emerges between property owners

Golden Gate University is hoping to rezone their building at Mission and First Streets, across from the Millennium and new Transbay Terminal, which could lead to a new 800 ft+ tower:

Golden Gate University is pushing to have its main campus at 536 Mission St. rezoned for an 850-foot tower as part of San Francisco’s new Transbay neighborhood...

Bob Hite, vice president of business affairs and CFO for Golden Gate University, said the university started discussing a plan to sell its 33,000-square-foot property at Mission and First streets to a highrise developer about a year ago. The site now holds Golden Gate’s main building, and he said the university would only be interested if it could either be part of a new mixed-use development on the site or move to another location in downtown San Francisco. Golden Gate has hired land use attorney Pam Duffy of Coblentz, Patch, Duffy & Bass LLP and has put together a task force to look at potential deals.

If approved, Golden Gate’s rezoning would be part of a highrise cluster around a 1,000-foot Transbay Tower that would include six skyscrapers over 600 feet and allow for another 5.8 million square feet of new office space, 1,350 housing units and 1,350 hotel rooms.

However, a fight is brewing with a neighboring parcel over which will be zoned for the higher tower:

The latest zoning proposal pits Golden Gate University against neighboring developer David Choo, who owns seven parcels in and around First and Mission streets. The latest Transbay plan calls for two tall towers — one 700 feet and one 850 feet — on the block that includes both Choo’s property and the Golden Gate University property. Choo has been trying to sell his parcels as a unified site that alone could accommodate the two towers, one 700 feet and one 850 feet.

Thus, if a tower is designated for the Golden Gate University property, it could reduce the Choo property to just one tower of either 700 feet or 850 feet. In 2006, Choo filed an application to build as many as five towers on his property, but over the past 18 months has been trying to sell a number of San Francisco building sites as his commercial mortgage lending business, California Mortgage & Realty, has suffered severe losses. One of his funds, CMR Mortgage Fund II, filed for Chapter 11 bankruptcy on March 31.

SOURCE: BIZ JOURNALS

Refinances plunge on interest rate spike

As interest rates rise, the number of refinances (and soon to be purchase money) decrease:

A rise in interest rates has put a damper on a mortgage refinancing boom, according to industry data released yesterday, and created another potential stumbling block to a housing recovery.

Mortgage interest rates, at historic lows for weeks, rose to 5.25 percent for a 30-year fixed rate loan last week, a level last seen in January. That led to a 16.2 percent seasonally adjusted drop in mortgage applications, according to the Mortgage Bankers Association's weekly market composite index, a measure of mortgage loan application volume.

The tumble mainly reflects a drop-off in refinancing activity. The index tracking refinancing applications fell 24.1 percent last week, while the purchase index increased 4.3 percent. Refinanced loans make up the majority of the market, but a smaller piece as of last week, according to the industry group.

Let's hope rates fall again, or our fragile recovery might be in jeopardy.

SOURCE: WASHINGTON POST

Pending home sales up 6.7% - largest gain in 7 years

Not unexpected news for follows of HighRiseSF

The number of U.S. homebuyers who agreed to purchase a previously occupied home in April posted the largest monthly jump in nearly eight years, a sign that sales are finally coming to life after a long and painful slump.

The National Association of Realtors said Tuesday its seasonally adjusted index of sales contracts signed in April surged 6.7 percent to 90.3, far exceeding analysts' forecasts. It was the biggest monthly jump since October 2001, when pending sales rose 9.2 percent.

Unfortunately, I predict a drop next month as rates have jumped almost a full percentage point in the past few weeks. That will put the brakes on new sales (I'm already seeing a pulling-back from my buyers). Stay tuned to see what happens.
SOURCE: REUTERS

Investors purchasing foreclosure homes; will ease supply glut

This is good news, as it provides evidence that the supply of houses on the market is slowly, but surely, being absorbed by investors:

The pace of housing sales has been rising in many markets this year, but it is only partly because families seeking affordable housing are returning to the market.

It also is because of investors like former Deutsche Bank managing director Matthew Cooleen, whose firm has spent $30 million buying pools of foreclosed houses from banks.

His newly formed Greenwich, Conn.-based firm, HudsonCross Financial, is betting it can make a profit reselling in beaten-down markets in states like Nevada, Arizona and Florida and in Southern California because it is paying so little for the homes.

Outside San Francisco, a former Morgan Stanley executive director's new firm is buying four houses for 75% less than they cost four years ago, and is raising $6 million to purchase others.

After mostly retreating from the housing market after the bubble burst, investors are returning in droves, hoping to take advantage of the distress. In many cases, Realtors say, investors also are outbidding first-time home buyers and other would-be occupants because they often come to the table with all-cash offerings.

"Foreclosures are low-hanging fruit at the moment," says Laurence Pelosi, who helped close big land and housing-development deals for Morgan Stanley before he left the bank earlier this year and joined McKinley Partners, a small investment firm that is buying foreclosures in California.

I know Laurence, nephew of Nancy. He was one of my clients back in 2005 when I sold him an investment property in Richmond. The fact that he's in the market (after losing about 50% on that investment) and still purchasing is a good sign for the economy as a hole.

Foreclosures were the main reason for the large drop in real estate values these past few years. Evidence of investors purchasing these homes will lead to price stabilization, decreased supply (which is already at the lowest levels in years), and point to a "bottom" of the market.

SOURCE: WSJ

Great news re: $8,000 tax credit and FHA loans

The Department of Housing and Urban Development announced plans that allow qualified first-time home buyers using a Federal Housing Administration-insured mortgage to "monetize" an $8,000 tax credit, meaning they can apply the funds to their down payment.
The recently unveiled credit, part of the Obama administration's effort to ease the housing crisis, was to be claimed on tax returns. "Families will now be able to apply their anticipated tax credit toward their home purchase right away," HUD Secretary Shaun Donovan said Friday.

Monetizing the credit effectively means FHA buyers are getting a short-term advance from lenders of up to $8,000 at closing. The money is paid back when the buyer files an amended tax return, receiving the credit.

First-time buyers using FHA-insured mortgages will have to make at least a 3.5 percent down payment on a home purchase. Friday's announcement means FHA-approved lenders may consider the funds as an additional down payment or for other closing costs, which can help lower a borrower's interest rate.

SOURCE: CHICAGO TRIBUNE

Could auto industry bankruptcies lead to higher mortgage rates?

That's the postion held by James Glassman, former under secretary of state during GWB's administration, presented in an op-ed in this weekend's NY Times:

Even if the courts were to reject the plans for G.M. and Chrysler, the administration’s actions in trying to force the deals may damage the credit markets for years to come. The treatment of the bondholders is a warning to investors that the federal government won’t hesitate to push them aside in a crisis.

Perhaps it’s no coincidence that in the wake of the Chrysler deal we have seen a decline in prices for long-term Treasury bonds and a sinking dollar. The Chinese, for example, could view things this way: If the United States is willing to skirt the law to help some of the president’s closest political supporters gain large pieces of two of the world’s biggest companies, will Washington necessarily stand behind any Treasury securities we own when it becomes politically inexpedient?

I don't put too much weight into the thoughts of former Bush administration officials, but I blockquote, you decide. Comments welcome, as usual.

SOURCE: NY TIMES